Private Flood Insurance Market Rule Approved, Expected to Take Effect in July 2019

Five federal regulatory agencies have approved a long awaitedfinal rule that makes it easier for mortgage lenders to accept private flood insurance policies. The agencies issued the rule in accordance with the Biggert-Waters Flood Insurance Reform Act of 2012, which required regulated institutions to accept certain private flood insurance policies in addition to National Flood Insurance Program (NFIP) policies.

The rule is expected to take effect on July 1, 2019.

Specifically, the new rule:

Will not require lenders to conduct their own review of a private policy if it contains a statement from the insurer certifying that it meets the statutory definition of “private flood insurance,” as established by the 2012 NFIP reauthorization law. Many lenders say they do not have the expertise to evaluate insurance policies during a home sale.

Will give banks more discretion to accept private insurance policies that do not meet the statutory definition of private flood insurance, subject to certain conditions. This allows them to continue to accept the multiple-peril policies that already insure many commercial properties.

The NFIP is the dominant provider of flood insurance in the U.S. For years, lawmakers have been looking for ways to expand the private flood insurance market to offer homeowners more coverage options, and hopefully to increase the number of homes covered by flood insurance. This rule is one way the federal government is hoping to help private insurers better access the flood insurance market, though Congress continues to consider legislation that will further promote private access to the market.

Regulators estimate that more than 300,000 policies in flood zones could be covered by private insurers as a result of the new rule, potentially tripling the current number of private flood insurance policies. FEMA has set a “moonshot” goal to double insurance coverage by 2023, and has acknowledged that this can only be achieved with an expanded private flood insurance market.